Shale boom lifts US crude output to 28-year high

US Energy Secretary Ernest Moniz said the mismatch between rising production of light oil in the US and the country’s refining ability is driving the debate over whether to lift a ban on crude exports.

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By MARK SHENK

Bloomberg

US crude production climbed to a 28-year high last week as
the shale boom moved the worlds biggest oil-consuming
country closer to energy independence.

Output rose 78,000 bpd to 8.428 million, the most since
October 1986, according to Energy Information Administration
data. The combination of horizontal drilling and hydraulic
fracturing, or fracking, has unlocked supplies from shale
formations in the central US, including the Bakken in North
Dakota and the Eagle Ford in Texas.

This is an incredible phenomena that looks set to
continue, John Kilduff, a partner at Again Capital, a
New York-based hedge fund that focuses on energy, said by
phone. Theres a long way to go before we explore
and exploit all of the shale deposits out there.

The US met 87% of its energy needs in 2013, and 90% in
December, the most since March 1985, according to the EIA,
the statistical arm of the Energy Department.

Crude output will average 8.46 million bpd this year and 9.24
million in 2015, up from 7.45 million last year, the EIA said
in its monthly Short-Term Energy Outlook on May 6. Next
years projection would be the highest
annual average since 1972.

The EIA forecasts that the gain in production at shale fields
will be augmented by greater offshore output this year and
next. Crude output in the waters of the Gulf of Mexico will
climb by 150,000 bpd in 2014 and by an additional 240,000 bbl
in 2015, following four consecutive years of declines,
according to the May 6 report.

Export Ban

US Energy Secretary Ernest Moniz said the mismatch between
rising production of light oil in the US and the
countrys refining ability is driving the
debate over whether to lift a ban on crude exports. The crude
unlocked from shale deposits is too low in density to be
absorbed entirely by the US refining system, Moniz told
reporters in Seoul.

The driver, or the consideration, is that the nature of
oil we are producing may not be well matched to our current
refinery capacity, Moniz
said.

The remarks highlighted pressure to overturn 1975 legislation
that bars exports while US production rises and inventories
swell. Senator Lisa Murkowski of Alaska, the senior
Republican on the Energy and Natural Resources Committee,
said in a Jan. 7 speech that she supports changing the export
rules.

This increases the pressure on the US to finally allow
for the export of crude, Kilduff said. The US
could be a major player in global export market.

Stockpile Gains

Production gains helped send US inventories to 399.4 million
bbl in the week ended April 25, the most since the EIA began
reporting weekly data in 1982. Stockpiles increased 947,000
bbl to 398.5 million bbl in the week ended May 9, according
to the agency.

Inventories along the Gulf Coast, known as PADD 3, grew 2.33
million bbl last week to 215.7 million, the most in EIA data
going back to 1990. Supplies there have been growing since
January as the southern leg of the Keystone XL pipeline began
moving oil to Gulf Coast refineries from Cushing, Oklahoma,
the largest US storage hub.

Futures rose after todays EIA report showed supplies at
Cushing, the delivery point for WTI, dropped for the 14th
time in 15 weeks. Inventories fell 592,000 bbl last week to
23.4 million, the lowest level since Dec. 5, 2008.

West Texas Intermediate crude for June delivery increased 75
cents, or 0.7%, to $102.4/bbl at 2:02 p.m. on the New York
Mercantile Exchange.

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